The holiday season is already here and 2016 seemed to fly right by. With upcoming election excitement (and/or concerns) coupled with family gatherings, for many Americans our plates are already full…although Thanksgiving is still few weeks away! Regardless of your political or holiday plans, make sure you carve out some time (not just turkey) for important retirement distribution planning that can impact the rest of your life and that of your loved ones. You can be ahead of the game and tackle year end planning before December hits!


Taxes and Social Security

Will Your 2016 Social Security Benefits Be Taxable? Here are some IRS tips to help you determine if your benefits are taxable:

• Social Security tax liability is determined by your income and filing status.

• If Social Security is your only 2016 income source, your benefits may not be taxable since you don’t have substantial income in addition to you benefits.

• If you received income from other sources, you may owe taxes on your Social Security benefits.

•  Quick steps to determine whether Social Security benefits are taxable:

1. Add ½ of your Social Security benefits received to your AGI, including tax-exempt interest. This is your “combined income.”

2. Compare this to the base amount for your filing status below. If your combined income is more than your base amount, your Social Security benefits are likely taxable:

2016 Base Amounts:

$25,000 – single, head of household, qualifying widow or widower with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year.

$32,000 – married couples filing jointly.

$0 – married filing separately who lived together at any time during the year.

As always, if you have questions about your situation, consult with your personal tax professional.

IRA Contribution Deductions

Traditional IRA contributions may be deductible but if you (or your spouse, if married) have a workplace retirement plan, being an active participant in that plan may affect your ability to deduct contributions made to your traditional IRA.

The following chart illustrates the IRA deduction phase out thresholds for 2016 if you or your spouse are covered by a workplace retirement plan:

Please keep in mind that Roth IRA contributions are NEVER deductible.

Defined Benefit Plan v. Defined Contribution Plan

What type of qualified retirement plan will best suit your retirement planning needs? A common question we get is: “What is the difference between a Defined Benefit and Defined Contribution Plan… aren’t they the same?” No, they are not!

The labels Defined Benefit Plan and Defined Contribution Plan are so similar that many people are easily confused by the terms. In Defined Benefit Plans, the plan is employer sponsored and the payout to employees is based on a formula that typically factors in length of service and salary history. In Defined Benefit Plans, an employer sets aside a certain amount each year for eligible employees. The ultimate amount payable to an employee is unknown because the benefit is not fixed.

To help demystify these terms, think of Defined Benefit Plans like pensions and Defined Contribution Plans as a 401(k)s, 403(b)s and IRAs, as they are the most common examples. Here is a comparison chart to help illustrate a few basic differences between these two types of plans:

Understanding Net Unrealized Appreciation

Many corporations offer their employees different kinds of incentives and/or bonuses. One of these is company stock held in a 401(k) or another qualified pension plan. If you hold stock from a previous employer in a qualified plan, you are eligible, under the IRS code, for special tax treatment on those assets based upon a concept called Net Unrealized Appreciation (NUA).


To put it simply, if you rollover the stock to an IRA, the company stock’s NUA will be taxed at your ordinary income tax rate when you distribute the stocks. If, however, you transfer the company stock in kind to a regular brokerage account, your ordinary income tax rate will apply to the basis (which is recognized as a distribution). The long-term capital gains tax rate in effect at the time you eventually sell the stock will apply to the NUA upon distribution.


When you decide to sell those shares, you will only pay the capital gains tax rate, not ordinary income tax on the appreciation. This rule holds true for whenever you choose to sell – once you trigger an NUA strategy, the 1 year holding period for long-term capital gains treatment is automatically satisfied.

Your personal retirement distribution specialist and tax professional can explain to you some of the other stipulations in the Tax Code involving NUA.

These include:

• There must be a triggering event such as separation from service, turning 59½, full disability (if selfemployed) or death.

• The stock must have been purchased with pre-tax contributions or employer matches.

• To qualify for the break, you must take the entire pension plan account balance in a lump sum distribution over the course of one tax year – all assets must be distributed, not just the stock. • Dividends paid on the stock are not tax-deferred.

• For inherited stock in an IRA, beneficiaries are taxed at a different cost basis, called a step-up in basis. Your advisor can describe for you how stepup in basis works, and how it may affect you and your heirs.


Healthcare Planning Reminder

Medicare and Medicaid were not designed to cover LTC expenses. People are living longer and maladies such as Alzheimer’s and dementia are rapidly increasing. Many of us have personal experience with loved ones who have suffered with such age-related illnesses. There has been a tremendous spike in life expectancy in America over the last 50 years, thus the need for access to better long-term care solutions has become a necessity. What makes the new LTC solutions available today different? Unlike programs such as Medicare and Medicaid, there are new LTC solutions that don’t require you to spend down all your assets first or rob your savings accounts until you are essentially penniless. Talk to your retirement distribution specialist about this today!


Important Winter Deadlines

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